Why seek independent financial advice?
The UK has a sophisticated financial services sector. If you want to make a significant purchase, such as buying a car or house, you are likely to need finance in the form of a loan or mortgage. You will therefore buy a financial product provided by a bank, building society or other lender. But if you think it’s easy to be confident that you’ve made the right choice, think again.
We are all experts in the things we buy every day, such as food and clothing. But are we experts in loans and mortgages? Let’s face it, most of us lack the knowledge and familiarity to select financial products with confidence. The choice of financial products and lenders is bewildering! Many of us simply don’t know what we want or where to go for help.
Your personal finances are far too important to leave to chance!
If you think you need help the answer is simple: get expert financial advice from a qualified adviser. But who are these experts and how will you know whether they are giving you good advice?
Structure of the UK finance industry
The first thing to understand is that the finance industry for loans and mortgages is made up of:
• Product providers, such as banks, building societies and other lenders
• Intermediaries between you and the product provider, such as brokers and advisers
Product providers are the lenders that will issue and administer your loan or mortgage. They are banks, building societies or other authorised/licensed lenders. Some will be household names but many will be unknown to you.
Intermediaries are the brokers or advisers whose function is to help and guide you choose the right loan or mortgage for your individual circumstances. They will give you expert impartial advice on different products from a range of lenders. They will help you complete all the necessary paperwork, such as application forms and loan agreements.
In return, they will be paid by the lender after the completion of your loan or mortgage. You should never be charged an upfront fee so their service to you is effectively free.
Should I go direct to the lender?
If you are confident in your choice of product after researching the market, go for it! There is more information than ever before on the internet. You may prefer to buy from a particular company with a brand that you know and trust. However, are you sure that you are getting the best deal on the market? If you want to buy a complex product, can you be sure that you fully understand it?
The problem with going direct is that the lender can only offer its own products. You will be told which of the lender’s products is appropriate for you but you will not be told about competing products from other lenders. If you want to make a comparison and buy “best of breed” you will have to shop around to obtain quotations.
We have a simple view. If you can get free expert advice you should grab it with open arms. So who are these intermediaries?
Intermediaries explained
The key reason for going to an intermediary is to obtain expert advice. Even if the intermediary only confirms your opinion, the intermediary can then go anywhere in the UK financial marketplace on your behalf to obtain the best possible deal for you.
An intermediary will help arrange everything with the product provider. Completing the required paperwork is not necessarily straightforward and professional help should ensure that there are no unnecessary delays. At the very least they will act as a buffer in your dealings with the product provider, such as making sure you understand the product and won’t be rushed into making a decision.
Intermediaries are always paid by the product provider but they should always be acting in your best interests. Suspicious? Brokers are heavily regulated by the government to ensure that you receive impartial advice, that is advice not influenced by how much commission the product provider pays to the broker. They are acting for you and must look after your best interests.
How can I be sure I am receiving impartial advice?
You are guaranteed to receive independent financial advice when you see the blue IFA pound sign logo. An Independent Financial Adviser (IFA) is regulated by the Financial Services Authority (FSA) and will be able to arrange deals with any UK financial institution. But what you really want is impartial advice.
IFAs often specialise in loans, mortgages, life insurance, pensions or other financial products. Ask what experience the adviser has in the area you are interested in. You should also ask the IFA what qualifications he or she has.
What qualifactions does your adviser have?
All financial advisers are required by their regulator to hold the Financial Planning Certificate or the Certificate in Financial Planning, before they are allowed to provide financial advice. Advisers with these benchmark qualifications are also obliged to keep up with relevant financial developments throughout their career. Every adviser must maintain a personal record of continuous professional development (CPD).
There are also advanced or incremental qualifications that an adviser can possess, some covering broad financial knowledge and some focusing on particular product areas.
When advising on mortgages, the IFA should have one of the following qualifications: Certificate in Mortgage Advice or Certificate in Mortgage Advice and Practice (CeMAP).
Alternatively, Unbiased.co.uk, the organisation which promotes the benefits of independent financial advice, has teamed up with the Financial Services Skills Council (FSSC) to create a two tier ranking system. Level A is the minimum level of qualification to become a Financial Adviser. Level B qualifications demonstrate a higher level of expertise.
When advising you on personal loans (unsecured on any property) or homeowner loans (secured on your property), the broker need not be an IFA. Loan brokers are regulated by the Office of Fair Trading (OFT) under the Consumer Credit Act.
Make sure you know the difference between information and advice. Advice may give you certain rights and protection - ask your adviser about this. Ask for a written quote of costs and whether it will be on a fee or commission basis.
The Association of Independent Financial Advisers (AIFA) is the trade association for professional advisers and includes the Association of Mortgage Intermediaries (AMI) and the Association of Finance Brokers (AFB).
Conclusion
In personal financial planning terms, taking out the best personal loan, homeowner loan or mortgage should be near the top of your priorities. Loans and mortgages should be repaid as soon as possible as they become expensive over the longer term.
A qualified adviser can talk you through your complete financial situation and advise you on your various options. This way you can see clearly what the impact of borrowing might be and avoid any future repayment difficulty should interest rates rise or your circumstances change.
Your friends or family may be able to recommend a financial adviser. If not, we recommend that you visit unbiased.co.uk the website of Independent Financial Adviser Promotion (IFAP) where you can find contact details of advisers in your local area. You can specify which areas you want advice on and what qualifications you want the adviser to possess.
